TAXATION: Exporters are forced to pay cess to both the national and county governments

Thu, May 20, 2021



It is feared that if the new regulations are not reversed, there will be job losses and reduced production from farmers.

As the horticultural industry struggles to withstand the effects of the global Covid-19 pandemic that have repeatedly disrupted markets and supply chains across the world, the country’s taxation policies threaten to further complicate matters.

Indeed, the imposition of a 0.25 per cent cess based on the value of the freight on board to replace the previous 30 cents per kilo is only the latest twist in the industry’s struggle against a disruptive taxation regime. The new tax, which took effect at the beginning of this year, has seen exporters pay up to 10 times of the previous tax amounts.

The new tax has been enabled by the implementation of the Horticulture (Crops) Regulations, which were gazette in June 2020. In addition, the Horticulture Directorate ordered that the cess be paid upfront, unlike previously when it was paid in arrears.

Double taxation

An intractable problem has also been the issue of double taxation, with exporters forced to pay cess to both the national and county governments. This has seen stakeholders taking court action against specific counties, with notable victories recorded.

In a statement, the Kenya Flower Council complained that the new cess regulations had provided only one day for compliance, since the letter from the Horticulture Directorate was dated 30th December 2020. “This arbitrary increase will definitely kill the industry that is still struggling to recover from the impact of Covid-19 pandemic.”

The demand for cut flowers has been picking up across the world as countries ease lockdowns and other Covid-19 restrictions that had hindered exports. The US has also opened up its market to receive carnations from Kenya (see separate story). The promising outlook for the industry now stands jeopardized by the new cess regulations, which go against efforts to create a competitive business environment in the country.

Jobs, investment at stake

It is feared that if the new regulations are not reversed, there will be job losses and reduced production from farmers. “There is no sign of added value or service from the Horticultural Crops Directorate to exporters that warrants the increase,” said Kenya Flower Council CEO Clement Tulezi.

Horticulture is currently the second highest foreign exchange earner after tourism, and it remains to be seen what impact the new cess regulations will have on production and the competitiveness of Kenya’s exports, and consequently export revenues.

Statistics from the Fresh Produce Exporters Association of Kenya show that more than a million jobs were created in the horticultural sector between 2012 and 2020. The industry has rapidly expanded throughout the country, with many more counties taking up horticultural farming than was hitherto the case. The value of exports has grown tremendously, rising from Ksh89 billion in 2012 to Ksh151 billion in 2020.

The rapid expansion has also led to greater investment by logistics companies; these include Mitchell Cotts, Big Cold, Kuene + Naegel, KAHL, Trade Winds, Morgan Cargo, and Signon.





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